CORPORATE SOCIAL RESPONSIBILITY IN EUROPEAN BANKING INDUSTRY AND LESSON FOR VIETNAM

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MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
MASTER THESIS
CORPORATE SOCIAL RESPONSIBILITY IN
EUROPEAN BANKING INDUSTRY
AND LESSON FOR VIETNAM
Specialization: International Trade Policy and Law
NGUYEN THI THUY HANG
Hanoi – 2020

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
MASTER THESIS
CORPORATE SOCIAL RESPONSIBILITY IN
EUROPEAN BANKING INDUSTRY
AND LESSON FOR VIETNAM
Major: Economics
Specialization: International Trade Policy and Law
Code: 8310106
Full name: Nguyen Thi Thuy Hang
Supervisor: Dr. Ly Hoang Phu
Hanoi – 2020

i
DECLARATION
I hereby declare that this master thesis is the scientific research of my own
which made on the basis of theoretical studies and under the direction and
supervision of Dr. Ly Hoang Phu. The research contents and results of this thesis
are completely honest. These data and documents for the analysis, review were
collected from various sources which are fully listed in the reference list.
I am fully responsible for the content of this master thesis as well as this
declaration.
Hanoi, 14 March 2020
Author
Nguyen Thi Thuy Hang

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ACKNOWLEDGEMENT
During the completion of this master thesis, I received the guidance and
valuable help from the lecturers, colleagues and friends. With great respect and deep
gratitude, I would like to express sincere thanks to:
Dr. Ly Hoang Phu, who wholeheartedly helped, supported and encouraged me
from the initial to the final level of this dissertation. He provided me with
comprehensive guide from choosing the topic, outlining the thesis and editing this
research.
Professors and lecturers, who not only spread profound knowledge and
information in the fields of economy and law but generated strong motivation for
me while I was taking this course as well.
Last but not least, I would like to express my sincere thanks to my family, my
colleagues and my friends, who have always by my side encouraging, supporting,
contributing valuable ideas and giving me favorable conditions for me to complete
this scientific research.

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TABLE OF CONTENTS
DECLARATION....................................................................................................... i
ACKNOWLEDGEMENT.......................................................................................ii
TABLE OF CONTENTS........................................................................................iii
LIST OF ABBREVIATIONS................................................................................. vi
LIST OF FIGURES ............................................................................................... vii
LIST OF MAP ........................................................................................................ vii
LIST OF TABLES ................................................................................................. vii
ABSTRACT ...........................................................................................................viii
INTRODUCTION.................................................................................................... 1
1. Research Rationale...........................................................................................1
2. Research objectives ..........................................................................................2
3. Object and scope of research...........................................................................2
4. Research questions ...........................................................................................2
5. Research methodology .....................................................................................3
6. Thesis outline ....................................................................................................3
CHAPTER 1: LITERATURE REVIEW OF CORPORATE SOCIAL
RESPONSIBILITY.................................................................................................. 4
1.1. CSR concept ...................................................................................................4
1.2. Theoretical approaches of CSR....................................................................5
1.2.1. Carroll’s CSR pyramid ............................................................................5
1.2.2. The Triple Bottom Line ...........................................................................8
1.2.3. The Stakeholder Theory ........................................................................ 11
1.3. CSR practices in banking industry............................................................ 13
1.3.1. Commercial banks’ interpretation of CSR ........................................... 13
1.3.2. The role of central banks in supporting CSR activities........................ 17
CHAPTER 2: CSR IN EUROPEAN BANKING INDUSTRY.......................... 20
2.1. Specific features of CSR in Europe............................................................ 20
2.2. Guidelines to address CSR ......................................................................... 23
2.3.1. The Equator Principles.......................................................................... 25
2.3.2. UNEP FI Principles for Responsible Banking..................................... 27

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2.3.3. The UN Principle for Responsible Investment..................................... 30
2.2.4. EU Directive on Non-financial and Diversity Information ................. 30
2.3. CSR in European banking sector............................................................... 31
2.3.1. Overview of banking industry in Europe.............................................. 31
2.3.2. The role of authorities in CSR activities............................................... 33
2.3.3. CSR practice in European banking industry........................................ 36
2.3.3.1. Community involvement ............................................................... 36
2.3.3.2. Environmental impact ................................................................... 39
2.3.3.3. Information disclosure................................................................... 40
2.3.3.4. Social Responsible investment ...................................................... 42
2.3.3.5. Labour relations............................................................................. 43
CHAPTER 3: CASE STUDIES FROM LEADING BANKS IN EUROPE ..... 45
3.1. CSR in BNP Paribas SA.............................................................................. 45
3.1.1. Overview ................................................................................................. 45
3.1.2. CSR achievement ................................................................................... 46
3.2. CSR in Banco Bilbao Vizcaya Argentaria (BBVA).................................. 52
3.2.1. Overview ................................................................................................. 52
3.3.2. CSR activities ......................................................................................... 53
3.3. Intesa Sanpaolo............................................................................................ 60
3.3.1 Overview .................................................................................................. 60
3.3.2. CSR performance................................................................................... 61
3.4. Discussion ..................................................................................................... 68
CHAPTER 4: LESSON FOR VIETNAM BANKING INDUSTRY IN
APPLICATION OF CSR ...................................................................................... 69
4.1. Overview about CSR activities in Vietnam banking sector .................... 69
4.1.1. Current understanding of CSR in Vietnam.......................................... 69
4.1.2. CSR activities in Vietnam banking sector............................................. 71
4.1.3. Limitations.............................................................................................. 74
4.2. Lessons for Vietnam banking industry ..................................................... 75
4.2.1. Lessons for commercial banks .............................................................. 75

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4.2.2. Recommendation for State Bank of Vietnam (SBV)............................ 78
4.2.3. Recommendation for the Government.................................................. 80
CONCLUSION....................................................................................................... 81
REFERENCES

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LIST OF ABBREVIATIONS
Abbreviation Full name
BBVA Banco Bilbao Vizcaya Argentaria
CSR Corporate Social Responsibility
EBF European Banking Federation
ECB European Central Bank
EPFI Equator Principles Financial Institution
Eps The Equator Principles
ESCB European System of Central Banks
ESG Environmental, Social and Corporate Governance
ESMS Environmental and Social Management System
EU European Union
GRI Global Reporting Initiative
IR The International Integrated Reporting
ISO International Organization for Standardization
MFIs Microfinance Institutions
NCBs National Central Banks
NGO Non-Governmental Organization
OECD Organization for Economic Cooperation and Development
SBV The State Bank of Vietnam
SDG United Nations' Sustainable Development Goals
SMEs Small and medium-sized enterprises
UN The United Nations
UNEP FI United Nations Environment Programme Finance Initiative
UNPRI United Nations Principles for Responsible Investment

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LIST OF FIGURES
Figure 1.1: Carroll’s pyramid of CSR............................................................................................. 8
Figure 1.2: The Triple Bottom Lines Model................................................................................ 9
Figure 1.3 :Clarkson’s Typical Corporate and Stakeholder Issues Model................... 12
Figure 2.1. Total assets in EU banks 2018................................................................................. 32
Figure 2.2. Deposits in EU banks as a share of total banking asset 2018 .................... 32
Figure 2.3: Share of bank loans and capital markets in US, EU, JP............................... 33
Figure 3.1. BBVA sustainable finance in 2018........................................................................ 59
Figure 3.2. Intesa Sanpaolo’s loans with social impact in 2018....................................... 64
LIST OF MAP
Map 3.1. BBVA overviews at Dec 2019.................................................................. 53
LIST OF TABLES
Table 1.1: Areas in commercial banks’ ethical responsibility................................. 15
Table 2.1: CSR issues in the American and European context................................ 22
Table 2.2. The Principles for Responsible Banking................................................. 28
Table 3.1. BNP Paribas CSR Strategy ..................................................................... 47
Table 3.2: Summary of number of transactions from 2011-2018............................ 49
Table 3.3. CSR main drivers in BBVA.................................................................... 54
Table 3.4. Total investment in education................................................................. 57
Table 3.5. Main drivers to CSR activities in Intesa Sanpaolo ................................. 62
Table 3.6. Intesa Sanpaolo contribution to the community in 2016-2018............... 65

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ABSTRACT
The evolution of Corporate Social Responsibility (CSR) has an impressive
history since the 1950s. The roots of the concept indicates that the business domain
have paid increasing attention to the concerns of society. However the term CSR is
viewed in different concepts and still searching for a universally accepted definition.
This thesis reviews the development of the concept of CSR over time, the
implementation of CSR in Europore banking industry and some matters of CSR in
Vietnam banking sector. By that, some lessons for Vietnam will be discussed.
Using qualitative methodology with a multiple case-study approach, this thesis
examines the key features of CSR strategies and implementation in the European
banking industry, which is intended to conduct only three cases of big banks in
Europe. It also explores CSR practices in Vietnam banking context via examples of
CSR activities of some commercial banks in Vietnam.
In conclusion, the thesis contains a general discussion on the topic of CSR in
banking sector. The most important part of the thesis discusses the implementation
of CSR in European banking industry and points out some lessons for Vietnam.

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INTRODUCTION
1. Research Rationale
The globalization and social development require all corporations, big or small,
local or international, to take their Corporate Social Responsibility (CSR) into account
by improving the social and environmental performance (Qi Lai, 2006). In keeping
with global movement, the concept of CSR is rapidly spreading in all sectors of the
economy including banking (Omur et al.,2012). Moreover, under destructive impacts
of the global financial crisis and strong competitiveness in the financial market,
banking sector, one of the vulnerable, plays a crucial role in facilitating the nation’s
economy and leading the nation to apply CSR (Singh et al.2013).
Although lacking the consensus of CSR definition among academicians and
practitioners, it is obvious that CSR can bring many advantages for the banking
sector (Tran 2014). Firstly, it helps to enhance bank’s reputation. In banking
industry, reputation is a very important factor to retain old clients and attract new
ones, which eventually enhances banks financial status. Besides, if a bank pays
attention to social responsibilities, they can get profits for themselves through better
risk management, employee loyalty and higher reputation. Therefore, banks are
now supposed to become more responsible for social issues.
A long ago, The European banking industry has realised the importance of
having a defined CSR policy – banks fully understand the worth of CSR because
they are such central actors in any modern economy. Meanwhile, Vietnam is
integrating more and more deeply into the international trade but CSR is a relatively
new concepts (Pham, 2015). Therefore, the thesis is to examine the current practices
of corporate social responsibility in European banking industry, analysis three of the
biggest banking corporation in Europe. Their practices may also act as references to
Vietnam banking industry.
From the above reasons, the author selected the topic "Corporate social
responsibility in European banking industry and lesson for Vietnam".

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2. Research objectives
The aims of this thesis are to draw out and analyze how CSR has been applied
in banking industry, analysis some cases and from there, share some personal as
well as collected opinions from different publications and from the author about
how or which actions can be taken to make the CSR situation in Vietnam banking
sector better.
3. Object and scope of research
Regarding the content of the dissertation, it focuses on the real situation of
CSR in the European banking sector and policy recommendation. Therefore, the
object of thesis includes the implementation of CSR activities in European banking
sectors in general and in three big bank groups which recently have significant
achievements as well as the practice of CSR activities in some banks in Vietnam.
The scope of this thesis is as follows:
As for geographical scope, the research is intended to conduct cases of three
big banks in European which having significant result in CSR activities.
As for time scope, the research focuses on analyzing the cases in the period
from 2015 to 2018, the author can draw more reasonable results from the analysis.
As for the general theoretical framework, there will be no limits of time.
4. Research questions
The main research questions will be:
- How is the current CSR application in European banking industry ?
- What needs to be done in order to facilitate the application of CSR in Vietnam?
However, this piece of writing will be carried out based on the foundation of a
few smaller research questions:
- What are the factors that have effect the application of CSR in the European
banking industry?
- How do the Vietnamese corporations perceive CSR?

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- What are the current CSR practices and strategies adopted by Vietnamese
banks?
5. Research methodology
The thesis examines theoretical and practical exposure of CSR in Banking
perspective. As a result, the paper is descriptive in nature. Most of the information
are generated by evaluating “Secondary Sources” like:
- Annual report of different commercial Banks
- Study related books and journals
- Web sites
The author has chosen a qualitative approach towards this thesis. The
qualitative approach allows the author to study and analyze the data collected and
come to a conclusion based on them, hence better suits the main aim of the paper.
6. Thesis outline
Depart from the introduction, reference document and the conclusion. This
thesis contains four chapters:
Chapter 1: “Literature review of Cooperate Social Responsibility” provides
the most essential knowledge of CSR including the concept, theories of CSR.
Chapter 2: “CSR in European Banking Industry” analyzes the overview of
CSR activities in European banking industry
Chapter 3: “Case studies from leading banks in Europe” examine more detail
on CSR practices applied in three leading banks in CSR in Europe
Chapter 4: “Lesson for Vietnam Banking Industry in application of CSR”
draw a general picture of how CSR has been applied in the Vietnamese banking
industry and point out some recommendations.

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CHAPTER 1: LITERATURE REVIEW OF CORPORATE SOCIAL
RESPONSIBILITY
1.1. CSR concept
According to Paladino (2004), the evolution of ideas and thinking around social
responsibility has started in the decade of the fifties with the definition proposed by
Bowen (1953). In the book “Social Responsibilities of the Businessman”, Bowen, who
has been referred to as the “Father of CSR” due to his groundbreaking research in the
field (Carroll 1999, pp.268-270) had introduced CSR as a definitional construct. In this
book, the author defined CSR as “the obligations of business to pursue those policies,
to make those decisions or to follow those lines of action which are desirable in terms
of the objectives and values of our society”. The book aimed at educating executives
the values “considered desirable in our society”.
CSR grew in popularity in the 1960s due to the social movements of the time and
various academics who sought to further identify what benefits CSR could bring to
business overall (Levitt’s, 1958). Most of these movements took place in the US and
included the environmental movement, consumer rights, rights of women as well as the
civil rights movement (Carroll et al. 2010). Milton Friedman (1970) chooses a different
conception of CSR as advanced by his predecessors. By that, the author considers the
social responsibility of any business as the achievement of gains for shareholders “The
social responsibility of business is to increase its profits”.
In 1971, the Committee for Economic Development of the United States defined
CSR as a business function to serve constructively the needs of society (Carroll, 2008).
In the 1970s, the first widely accepted definition of CSR emerge is Archie Carroll’s 4-
part concept of economic, legal, ethical and philanthropic responsibilities, and then
developed as a CSR pyramid (Carroll, 1979). Carroll distinguished four types of
obligations: economic (be profitable, manufacture goods complying with quality
standards, ..), legal (compliance with laws and regulations), ethical (act according to
moral principles shared by society) and philanthropic (benevolent actions and charity).
According to the author, CSR is “the set of obligations that the company has including
economic, legal, ethical and discretionary categories”.

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In the 1980s, stakeholder theory, business ethics, sustainability and corporate
citizenship are complementary themes which received significant attention.
Stakeholder theory was possibly the most significant of these complementary themes.
It suggested that companies should consider not only those individuals and groups who
have shares in the company, but also any individuals or groups that have a ‘stake’ in
the company (Mele, 2008), such as employees, suppliers, community…etc.
The end of 20th century observed noticeable changes in corporate strategy and
management towards sustainable thinking which sustainability was integrated in
company’s business strategy in order to obtain the triple bottom lines: economic,
social and environmental (Elkington, 1997).
In 2000s, the definition of CSR was revisited by scholars like Dahlsrud
(2008), through content analysis, analyzed thirty-seven definitions of CSR from
twenty-seven authors and covered a time span from 1980 to 2003. He was able to
develop five dimensions of CSR (i.e., environmental, social, economic, stakeholder
and voluntaries). According to While Rahman (2011), dimensions of CSR are
presented as below : (i) Obligation to the society (ii) Stakeholder’s involvement (iii)
Improving the quality of life (iv) Economic development (v) Ethical business
practices (vi) Law abiding (vii) Voluntariness (viii) Human rights (xi) Protection of
Environment (x) Transparency and Accountability .
In short, CSR is the responsibility of business for their impacts on society.
Although, up to now, there is no universally accepted definition of CSR. The
concept of CSR defers depend on the place, time of detail situations.
1.2. Theoretical approaches of CSR
1.2.1. Carroll’s CSR pyramid
Carroll’s four part definition of CSR was originally stated as follows:
“Corporate social responsibility encompasses the economic, legal, ethical, and
discretionary (philanthropic) expectations that society has of organizations at a
given point in time” (Carroll 1979, 1991). A brief review of each of the four
categories of CSR as bellows:

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First, economic responsibility is to make money. It is the fundamental
condition for the existence of every enterprises. It includes making profit and
satisfying its stakeholders financial-wise (Claydon, 2011). There are special cases
such as nonprofit organizations make money (from their own activities as well as
through donations and grants), but take it back into their work. However the
majority of operations have to be profits. Profits are necessary both for investors or
owners’ benefit and for business growth when they are reinvested back for long
term development. Regarding to economic responsibility, there are many business
concepts which are directed towards financial effectiveness such as revenues, cost-
effectiveness, investments, strategies and professional concepts focusing on
developing long-term financial success of the companies. With the strong
competitive in global business environment today, economic performance and
sustainability have become urgent topics. Firms will go out of business if they are
not successful in their economic area. Therefore, the economic responsibility is a
baseline requirement that must be met in a competitive business world.
The second obligation is legal responsibility to related to rules and regulations.
Society expects business to fulfil its economic mission within the framework of
legal requirements set forth by the legal system. Society has not only take part in
businesses as economic entities but also established the ground rules under which
businesses are expected to comply. These ground rules reflect society’s view of
“codified ethics” by that fundamental requirement for fair business practices are
established by lawmakers. Companies are required and expected to comply with
these laws. In fact, recently, compliance officers seem to have an important and
high level position in company organization charts.
The next element is ethical responsibility. In addition to what is required by laws
and regulations, society expects businesses to operate in an ethical manner. Taking on
ethical responsibilities means that organizations will involve to activities, norms,
standards and practices that are expected or prohibited by society even though they are
not codified into law. The goal of social expectations is that businesses will be
responsible for and responsive to the full range of norms, standards, values,

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principles, and expectations that reflect and honor what consumers, employees,
owners and the community regard as consistent with respect to the protection of
stakeholders’ moral rights (Carroll, 1991).
The final obligation is philanthropic responsibility. Corporate philanthropy
includes all forms of business giving such as voluntary or discretionary activities.
These activities are guided by the desire of companies to participate in social
improvement and not required by laws. They want to do what is good for the
community. Besides, Philanthropy responsibility may not be in a literal sense, but it
is expected by businesses and the expectation of the public as well. The public does
have an expectation that businesses will “give back” to the society. When one
examines the social relation between business and society today, it is found that the
citizenry expects businesses to be good corporate citizens just as individuals are. To
fulfill its perceived philanthropic responsibilities, companies engage in a variety of
giving forms - gifts of monetary resources, product and service donations,
volunteerism by employees and management, community development and any
other discretionary contribution to the community or stakeholder groups that make
up the community (Carroll, 1991)
The above four part CSR definition forms a conceptual framework which
includes economic, legal, ethical and philanthropic expectations that society puts on
enterprises at a given point in time. It could be said that the economic responsibility
is “required” of business by society; the legal responsibility also is “required” of
business by society; the ethical responsibility is “expected” of business by society;
and the philanthropic responsibility is “expected/desired” of business by society
(Carroll 1979, 1991). The author has indicated that as time passes what exactly each
of these four categories means may change of evolve as well. Based on his four-part
framework or definition of corporate social responsibility, Carroll created a graphic
image of CSR in the form of a pyramid which has been said that “Carroll’s CSR
Pyramid is probably the most well-known model of CSR” (Visser, 2006).

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Figure 1.1: Carroll’s pyramid of CSR
Source: Carroll,A.B., 2016, Carroll International Journal of Corporate Social
Responsibility.
Taken in order from top to bottom, these four obligations are decreasingly
pressing within the theory of corporate social responsibility. When companies
follow to well perform with respect to their economic, legal, ethical and
philanthropic responsibilities, tensions and trade-offs will arise. In this situation, the
company have to decide how to balance these responsibilities goes a long way
towards defining their CSR strategy and reputation. The economic responsibility to
owners or shareholders requires a careful trade-off between short term and long
term profitability. In the short term, companies’ expenditures on legal, ethical and
philanthropic obligations may conflict with their responsibilities to their
shareholders. This is when tensions and trade-offs arise and business should attempt
to create a favorable situation (Chrisman and Carroll 1984).
1.2.2. The Triple Bottom Line
The Triple Bottom Line concept was introduced in 1987 in Brundtland
Commission and officially named by John Elkington in 1994. This theory also known
as 3Ps or three pillars which states that a company should be responsible for three

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features: Profit, People and Planet, that is economic, social and environmental
responsibility. According to the Triple Bottom Line theory, companies should be
working simultaneously on these three bottom lines: profit stands for the traditional
measure of corporate profit, people measures how socially responsible an organization
has been via its operations, the planet measures how environmentally responsible a firm
has been. As elaborated by theorists including John Elkington, here’s how the balance
is defined and achieved economically, socially, and environmentally:
Figure 1.2: The Triple Bottom Lines Model
Source: Elkington, J. (1997).
According to Uddin et al. (2008), the economic dimension in three aspects.
Firstly, it is the consideration of the impact which the business has on a lot of
people in the area work for a company such as its stakeholders, local communities,
NGOs, employees, customers and suppliers. The higher profit of the company
benefits everyone in the community. The higher economic performance of the
company, the higher the salaries, which are spent on products and taxes. On the
companies’ point of view, the bigger profits allow to put more money into socially
responsible activities. The second feature of the economic dimension is contribution
through taxes. If companies get higher profit, the more tax is paid to the
government, which can spent on helping society. The last aspect of economic
dimension is avoiding any activity that abuses trust. This is because the reputation
of a company, once broken is very difficult to reclaim.

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Regarding to social responsibility relies on improving the standard of living. CSR
is a tool to develop the relationship between social and a company. The actions the
businesses take to benefit local communities frequently focus on some forms of
sponsoring, training, donations or recruiting (Idowu el at., 2010). CSR for employees
require the best use of their skills, taking care for their well-being, providing education
and training course as well as the best system of motivating. Moreover, the social
responsibility covers not only individual living in the area, it also cover all the people
affected by a company such as workers, customers, suppliers. For example a company
respects the Triple Bottom Line concepts would not exploit people, stands against child
labour and provides fair salary and fair treatment for its employees. Nowadays,
customer have more interest in the other side of the company’s activity, not only to the
products or services. Customers expect good quality but also require service during
transaction and after sales services. Therefore, focus on all customers’ need is a
potential driver of profitability (Golaszewska-Kaczan, 2009).
The last driver is environmental sustainability which begins from the affirmation
that the planet is the habitat for a company and the people. Natural resources are
limited. If large corporations pollute the environment with their actions and drive the
planet to destruction, they will be equally effected as well. Protect natural environment
is the responsibility of everyone, primarily of corporations due to the irresponsible
usage of natural resources, producing waste or emission of polluting by-products lead
to the negative impacts on the environment. Businesses can conduct to improve
environment in plenty of ways such as implementing more environmental friendly
thinking into company’s operations, reduction of waste, take necessary measures to
diminish the level of toxicity, investing to environmentally friendly project. All these
are actions must be supported by companies not because they are legally required but
because the preservation of a livable planet is a direct obligation within the triple
bottom line model of business responsibility.
Together, three notions of sustainability: economic, social, and environmental
- guide businesses toward actions fitted to the conception of the corporation as a
participating citizen in the community.

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1.2.3. The Stakeholder Theory
Stakeholder theory emphasizes that beyond shareholders, there are several
entities that are interested in enterprises’ actions and decisions. Freeman (1984)
defined a stakeholder as “any group or individual who can affect or is affected by
the achievement of the organization’s objectives”. When applying Stakeholder
Theory, the different stakeholders of an organization are seen as influencers and
assessors of various actions undertaken by the organization. Freeman argues that
not only the shareholders, but the stakeholders, must be taken into account in
decision making in order to achieve superior performance (Freeman, 2010). Carroll
(1991) continued to state that the main stakeholder groups are customers,
employees, local communities, suppliers and distributors, shareholders of the
company, and the overall society. He suggested that some of these terms raise
significant issues regarding to the value of organizational accountability to
stakeholders, especially “society at large” and the notion of community. Firms need
to adopt suitable approaches to deal with primary stakeholders accordingly.
Companies are unlikely to fulfill responsibilities (economic and non-economic) of
some primary stake holders, therefore, stakeholder management is necessary
(Carroll, A.B., Buchholtz, A.K. 2011). Although the stakeholder management
practice has a long-established, its academic review started only at the end of 70s.
In a seminal paper, Freeman (1978) presented two basic concepts, which underpin
stakeholder management. The first is that the central goal of the stakeholder
management is to achieve maximum overall cooperation between all stakeholder
groups and the objectives of the corporation. The second indicates that the most
efficient stakeholder management policy involves efforts, which simultaneously
deal with issues affecting multiple stakeholders. Stakeholder management tries to
combine groups with a stake in the firm into managerial decision-making.
According to Clarkson (1995), identifying the types of behavior that could
serve as indicators was a major issue that had to be dealt with. Based on a ten year
study, Clarkson (1995) developed a stakeholder framework for analyzing and
evaluating CSR as is outlines in Figure 1.3.

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1. Company 4. Customers
1.1 Company history 4.1 General policy
1.2 Industry background 4.2 Customer communications
1.3 Organisation structure 4.3 Product safety
1.4 Economic performance 4.4 Customer complaints
1.5 Competitive environment 4.5 Special customer services
1.6 Mission or purpose 4.6 Other customer issues
1.7 Corporate codes
1.8 Stakeholders & social issues
management systems
2. Employees 5. Suppliers
2.1 Genera policy 5.1 General policy
2.2 Benefits 5.2 Relative power
2.3 Compensation & rewards 5.3 Other supplier issues
2.4 Training & development
2.5 Career planning
2.6 Employee assistance program
2.7 Health promotion
2.8 Absenteeism & turnover
2.9 Leaves of absence
2.10 Relationships with union
2.11 Dismissal & appeal
2.12 Termination, layoff & redundancy
2.13 Retirement & termination
counselling
2.14 Employment equity &
discrimination
2.15 Women in management & on the
board
2.16 Day care & family accommodation
2.17 Employee communication
2.18 Occupational health & safety
2.19 Part-time, temporary co
2.20 Other employee or human resource
issues
3. Shareholders 6. Public shareholders
3.1 General policy 6.1 Public health, safety & protection
3.2 Shareholder communications &
complaints 6.2 Conservation of energy & materials
6.3 Environmental assessment of capital
3.3 Shareholder advocacy projects
3.4 Shareholder rights 6.4 Other environmental issues
3.5 Other shareholder issues 6.5 Public policy involvement
6.6 Community relations
6.7 Social investment & donations
Figure 1.3 :Clarkson’s Typical Corporate and Stakeholder Issues Model
Source: Clarkson (1995)

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The framework identifies six stakeholder groups: the company, employees,
shareholders, customer, suppliers and public stakeholders such as the government
and other interest group. Clarkson (1995) proposed that the performance of
corporations in terms of the social activities can be measured more effectively by
applying “... a framework based on the management of a corporation’s relationships
with its stakeholders than by using models and methodologies based on concepts
concerning corporate social responsibilities and responsiveness”.
1.3. CSR practices in banking industry
1.3.1. Commercial banks’ interpretation of CSR
There are a lot of researches on CSR, however, the banking industry is often
excluded from the studies (Siregar and Bachtiar, 2010). It is a consequence of the
general perception that the banks have limited contribution to various
environmental and social issues such as pollution or product safety (Khan et al.,
2011). Contrary to this general perception, banks are associated with a range of
specific CSR related issued from management of their own business practices as
well as the potential impact of the capital they supply and the provision of access to
financial resources. Banks indirectly assist other companies’ negative impact on the
environment by granting them finance (Simpson and Kohers, 2002), and directly by
e.g. utilizing energy and producing waste (Branco and Rodrigues, 2006). As a
result, nowadays most banks tend to include information regarding mentioned
aspects in their CSR disclosures. For instance, information regarding the banks’
efforts in energy conservation and waste policies are common features in the banks’
CSR reports (Branco and Rodrigues, 2006). Common platforms for these
disclosures are annual reports and sustainability reports. Applying the CSR model
by Carroll (1991) to commercial banks, The specific topics of economic
responsibility, legal responsibility, ethical responsibility and charitable
responsibility are summarized as below:
Regarding to economic responsibility, the expectation of commercial bank
owners include the maximization of shareholder’s value, the maximization of

14
profitability, powerful competitive position, efficient operation, growth and long-
term success. Based on Schoen’s analysis (2006), in some recent economic crisis,
the insufficient regulation, fraud, the shameful banking practice of mortgage
lending, the inappropriate compensation system and the assumption of enormous
risks had a significant role. Downturn required commercial banks to take
adjustment which shifted from short-term return to long-term return. This led to
new priority in commercial bank practice: loan portfolio risk management, ensuring
stable capital position and liquidity required for safe operation, and prudent
provisioning. However, a study by KPMG (2016) showing that all these are
insufficient for future success, and a new business model which focus on customer
and application of modern technologies are key features. Customer focus means that
products and services are instrumental in solving customers’ problems, and creating
value for the customer is at the heart of the approach. For the new generation, all
this must be implemented through mobile applications to facilitate their lives,
supported by empathic bank employees.
Next element is legal responsibility. In order to ensure its stability, the banking
sector is frequently subject to more strict regulation than the company of other sectors
(Yamak et al.,2005). Regulation include both mandatory acts and statutes and
voluntarily undertaken policies. The compliance function is wide-spread to ensure legal
accountability, observation of the policies and to mitigate risks. Most banks that assign
significance to CSR clearly consider compliance with the mandatory environmental
and social regulation as a very important dimension of responsibility, and non-
mandatory expectations as a fairly important dimension (Vigano and Nicolai, 2009).
After the most recent financial crisis, regulation of the financial sector and more strict
statues could be experienced with the purpose to minimize risk, and ensure safety and
confidence in the financial system. Recently, numerous banks have been heavily fined
for misleading customers, for fraud, for money laundering and for collaboration in tax
evasion through offshore companies (Clark et al.2015). Besides, there are a lot of
directives other than statutory regulations, given by various organizations, supervisory
bodies and professional associations. Policies popular in

15
the banking sector include the Equator Principle, The UN Responsible for
Investment…etc. These regulations are related to the indirect environmental
responsibility of banks through project financing, and many banks have also endorsed
the anti-money laundering policy set out by the Financial Action Task Force (FAFT).
Ethical responsibility appearing in commercial bank included climate change,
gender equality and bribery. Commercial banks’ ethical responsibility is shown in
respect of numerous stakeholders which main areas are summed up in the below
table:
Table 1.1: Areas in commercial banks’ ethical responsibility
Stakeholder Ethical responsibility
Owners Responsible, transparent and prudent lending and risk management
Respect for human dignity, fair treatment, non-discrimination, the prevention
Employees of harassment, fair wages, management based on inclusion, respect for privacy
and safe working conditions.
Responsible product improvement and marketing, fair and transparent
financial services, complaints management, the involvement and ethical
Customers
treatment of stakeholders, ethical financing funds, micro-credit offer, banking
services for immigrants, financial instruments/initiative to help women, young
adults and children, and other means of financial inclusion (e.g. for people
with reduced mobility and the elderly).
Long-term relationship based on confidence, non-discrimination, support to
Suppliers disadvantaged companies, integration of environmental and social
considerations in the supplier policy.
Competitors Observation of the standards of honest competition
State Honest tax payment, evasion of tax harbors.
Local Creation and maintenance of jobs, social innovation, social corporations,
community support to non-profit organizations.
Mitigation of environmental impacts, reduction in energy use, separate waste
Natural
collection, integration of environmental criteria in business decisions,
financing environmental investments, evaluation of financed companied
environment
according to environmental considerations, sustainable products and
environmental management.
Society in Improvement of the financial culture and awareness, training in finances;
general combatting money laundering, corruption and terrorism
Source: Lentner et al., (2017), the authors based on Idowu and Filho, 2009,
Izquierdo and Vicedo, 2012, Birindelli et al, 2015

16
Charitable responsibility includes programs that contribute to human
development and improve life standards, as for example voluntary support to arts,
training, sports or communities. In comparison to ethical responsibility, one of the
essential differences is that philanthropic actions do not respond to moral or ethical
expectations, they are optional and voluntary responsibilities (Carroll, 1991). Such
activity is widespread among banks, as it contributes to the improvement of the
reputation of a bank or the financial sector (Decker- Sale, 2009). However, it does
not replace either economic, legal or ethical responsibility.
The positive impacts of banks’ CSR activities may be analyzed from the
perspective of the bank or stakeholders and the society in a wider sense. Banks’
responsible activity assist efficient allocations, access to funds, the development of
financial services, the improvement of financial culture and adequate risk
management (Prior and Argandona, 2009). A study by Matute-Vallejo et al. (2010)
highlighted that bank’ CSR policies along with fair and transparent price strategies
increase customer loyalty. Other benefits of CSR activity include increase in
employee commitment and the development of a beneficial relationship with the
other stakeholders (Izquierdo and Vicedo, 2012). The financial sector is particularly
proactive in CSR and a positive correlation can be shown between CSR activity and
banks’ financial performamce (Wu and Shen, 2013; Birindelli et al.,2015).
According to study of Pérez and Del Bosque (2012) which focused on Spanish
banking institutions, banks tend to promote only those activities through CSR from
which generally the greatest benefit have. In the banking sector, there are three
basic groups: customers whom banks try to meet their financial needs; employees
whom banks try to create a perfect working conditions to achieve their satisfaction
and at last community where banks contribute to a sustainable growth. In the area of
CSR activities, Pérez and Del Bosque (2012) accuse banks of short-term
improvement of bank’s image and profit increase. According to authors, it is
necessary to incorporate a social responsibility into organization’s image and into a
long-term strategy to reduce mistrust. CSR concept is perceived as the most
effective tool to improve reputation.

17
1.3.2. The role of central banks in supporting CSR activities.
Since central banks are specifically created in the interest of public welfare,
their social responsibility is distinctive. Their objectives and duties are recorded in
statutes. Thus, central banks are institutions facilitating the achievement of
predetermined economic policy objectives. According to their tasks, they are
organization also attending to a state authority’s duties. It can say that the citizens
giving an authorization to the central bank, being a state-owned institution operating
in a social environment, to use every means available for it to promote welfare in
the community, naturally, without threaten its fulfilment of its primary objective
and statutory duties. The peculiarities that make sense for central banks’ role in
directing and supporting CSR activities as follows:
Firstly, central bank as an independent national authority that conducts monetary
policy, regulates banks and provides financial services including economic research. In
addition to the restrictions imposed by the objectives and duties, their nature is also
peculiar. The objectives are macro-economic policy goals, while the tasks are special
activities related to the operation of the financial sector (Lentner et al., 2017). For
example, the fundamental role of the central bank of the United States of America
(FED) in the economy covers four main areas: (1) Implementation of a monetary
policy to influence monetary and lending conditions, in an effort to maximize
employment, stabilize prices and keep long-term interest rates low; (2) Supervision and
regulation of financial institutions, to maintain security and stability in the banking and
financial system and protect customer rights; (3) Maintain stability of the financial
sector and manage any systemic risk in financial markets; (4) Provide financial services
to deposit management institutions, the US government and foreign official
institutions, including a leading role in the national payment system (FED, 2005). The
European Central Bank (ECB) can also be quoted as a characteristic example. Its main
purpose is to maintain price stability, in other words, to preserve the value of the euro
in public interest. General economic policy within the Europe Union can be supported
without risk the primary objective. Another objective of the ECB is to facilitate the
monetary integration of Europe. The ECB is responsible for

18
the special tasks related to the prudential supervision of credit institutions seated in
the participating member states. These duties are performed in the frame of a single
supervisory mechanism comprising the ECB and the competent national authorities
(Lentner et al., 2017 based on ECB, 2014)
Secondly, central bank has an important role as a legislation authority. Due to
the peculiar role they play, it requires a more complex interpretation. The central
banks attend to the supervision of financial markets and financial organizations as
authorities. In this role they also act as legislators. They motion for legislation in the
fields subject to their supervision, give their opinions on draft statutes, and also act
as legislators themselves based on their authorization. Thus, in addition to
compliance with the statutes, central banks’ legal responsibility related to the
shaping and interpretation of the legal framework and the observation of statutory
regulations. Several central banks have been assigned supervisory tasks.
Central bank also has important role in encourage ethical activities. Ethical
responsibility beyond their economic and legal obligations facilitates legitimation and
increase the confidence in economic system. This voluntary responsibility going
beyond statutes may be indicated in several ways related to stakeholders. The role of
culture in influencing behavior carries ethical values. An important role is assigned to
the provision of information and the improvement of financial culture through training.
Central banks place great emphasis on increasing the awareness of the users of
financial services and on reducing informational inequality (Csiszarik-Szigeti, 2015). A
more developed financial culture protects the users of the services on an individual
basis, but may also be helpful in preventing the evolution of systemic risks. Several
central banks, including the European Central Bank have numerous ethical values in
their mission statements. As an example, ECB assigns outstanding significance to trust-
worthiness, confidence, transparency and accountability in the course of achieving its
objectives. It takes effort to establish efficient communication with Europe’s citizens
and the media (ECB, 2014). Staff members’ conduct depends heavily on corporate
culture, i.e. the standards and values characteristic of banks. Through their regular
supervisory and regulatory activities, central banks can

19
influence the attitudes of at last the top and middle management in case not the
entire corporate culture (Tarullo, 2014). The central banks should more proactively
communicate with other commercial banks and companies to support effectively.
Central bank also could conduct many voluntary actions that contribute to social
development. For examples, due to its peculiar position, the European Central Bank
does not set any charity objectives, while the member banks of FED proactively pursue
community activities as good corporate citizens. Among others, there are many
activities include voluntary house painting, toy collection, clothing collection, meals
making, support to schools, scholarship programmes, blood donation and the collection
of donations for AIDS, cancer and diabetes patients (Lentner et al. 2017).
In short, according to Lentner et al. (2017), the interpretation of CSR in banking
sector are summarized as followings: (1) Economic responsibility of the commercial
bank and central banks has been extended and prudential approach has become
important; (2) Regarding legal responsibility regulation of the financial sector and
more strict statutes could be experienced with the purpose to minimize risk, and ensure
safety and confidence in the financial system. In this role, central banks also act as
legislators; (3) Ethical responsibility is beyond compliance approach: culture of ethics
and integrity must be rebuilt in the entire financial sector; (4) Certain banks are active
in voluntary charitable responsibility which can contribute to the reduction of social
problems but can not replace the economic, legal and ethical responsibility.
Among others, CSR in banking sector contribute to the reduction of poverty,
the protection of human rights, non-discrimination, community development, the
protection of the natural environment, and improving human welfare in general. At
the same time, CSR management help to restore the credibility, confidence in the
financial sector and therefore improve the reputation of the entire financial sector,
contribute to the stable operation of the economy (Idowu et al., 2010). CSR of
banking sector could be integration of economic, legal, environmental, social and
ethical aspects into the business strategy.

20
CHAPTER 2: CSR IN EUROPEAN BANKING INDUSTRY
2.1. Specific features of CSR in Europe
The overview of CSR in Europe has been sufficiently mentioned in the paper “ A
Guide to CSR in Europe, Country Insights by CSR Europe’s National Partner
Organizations” of CSR Europe in 2010. According to the report, the interaction
between business and society in Europe is shaped by the diversity of economic,
political and cultural landscapes across the continent. The concept that companies can
contribute to societal welfare without their legal obligations has a long tradition in
many parts of the region. In general, the development of CSR in Europe has been
driven both by proactive strategies adopted by pioneering businesses, European
institutions and national governments, as well as by external pressures from other
stakeholders such as civil society and the investor community, among others. In
Western Europe, while companies were expected to fulfill their societal obligations
mainly by complying with laws, paying taxes, and providing employment, the
development of the welfare state system during the second half of the 20th century
emphasized the role of the state as the primary provider of welfare. Over the recent
decades, however, economic and socio-political factors in many Western European
countries have led to a redefinition of the line between the public and the private sector
as well as their respective roles in the society. In this context, voluntary actions that
companies take as part of their CSR strategies to manage their economic, social and
environmental impacts and to contribute to wider societal development were received
growing attention. In the post-communist Central and Eastern Europe, environmental
and social concerns have tended to receive less attention than the significant economic
challenges regarding to the transition to market economy. However, CSR awareness
and implementation in the region are advancing rapidly. In contrast to Western Europe,
it is mainly companies themselves - often multinational corporations - that are the main
agents of change, whereas external pressure from civil society, media and public
authorities has so far been fairly low.
In Europe, as well as in other parts of the world, the CSR movement has

21
traditionally been led by large companies. However, the fact that 99% of European
companies are small and medium-sized enterprises (SMEs), and about two-thirds of
jobs in the private sector are in SMEs. Many small companies are by nature adapt to
the values of their founder or owner as well as to the needs of their local
communities, but today increasing attention is being paid to the implementation of a
more structured CSR approach in European SMEs.
As a relatively wealthy, stable region with a developed economic and societal
structure, the current CSR issues and challenges in Europe naturally differ to some
extent from those faced by the less developed regions in the world. Many social and
environmental responsibilities, which may fall under companies’ voluntary CSR
engagement elsewhere, are legally defined in Europe. Nevertheless, the increasing
interest in business opportunities associated with innovative CSR approaches,
together with the growing stake holder expectations for corporate accountability and
responsible business practices both within and outside Europe continue to push the
CSR program forward.
Furthermore, as a result of the financial and economic crisis, the level of
public trust in business has fallen in many European counties. In this context, it is
crucial for companies of all sizes to contribute to rebuilding trust in business and
shaping a more responsible and sustainable economy in Europe and globally.
Moreover, European CSR practices are normally codified in the legal
frameworks. It is important to note that corporate include public interest into their
decision-making deliberately. It leads to the diversity of international CSR models
which range from: corporations independently defining their level of contribution for
societal development to formal and informal institutions (from governments to NGOs
to common interest groups) agreeing on public interests which are then transformed
into mandatory requirements for corporations. It is very clear when comparing the CSR
models in America and Europe. Jeremy Moon and Stanislav Grafski, in their section of
The Report On Social Investments In Russia 2004, has compared the approaches to
CSR by America and Europe. According to the authors, in America, CSR is often
based on the principles of self-help and participation. Due to the nature

22
of American entrepreneurship which is based on maximizing the freedom of
participants, there are a lot of self-regulating mechanisms in American society.
Therefore, the relation between employer and employee are mainly the subjects of
bilateral agreements. The right to health protection is regarded as an individual
choice such as to acquire health insurance or not (hence, voluntary medical
insurance). On the other hand, European CSR practices rarely originate from the
explicit policies of corporations. With the formation of the European Union, CSR
has been received significant attention in Europe. Corporate activities, which are
traditionally carried out on a voluntary basis in the America, are normally implicitly
codified in the norms, standards and legal frameworks of respective countries in
Europe. Dirk Matten and Jeremy Moon in a research in 2017 has summarized the
differences between CSR in American and European context as below table:
Table 2.1: CSR issues in the American and European context
Source: Dirk Matten and Jeremy Moon (2017)

23
2.2. Guidelines to address CSR
The European Commission promotes CSR in the EU and encourages enterprises
to follow to international guidelines and principles. More specifically, the EU’s policy
is built on its 2011 renewed strategy for CSR, which aims to align European and global
approaches to CSR. This strategy stresses the importance of enhancing the visibility of
CSR and spreading good practices, through the integration of CSR into education,
training, and research. The strategy also improves self and co-regulation process and
companies’ disclosure of social and environmental information. Besides, there are a lot
of documents for CSR policy such as:
- Action Plan on Human Rights and Democracy (2015-2019), published in 2015.
The purpose of the present Joint Communication by the European Commission and the
High Representative of the European Union for Foreign Affairs and Security Policy is
to reaffirms the European Union’s commitment to promote and protec
human rights and to support democracy worldwide.
- Reflection paper: towards a sustainable Europe by 2030, published in 2019. It
using the UN’s Sustainable Development Goals (SDGs) as a compass, the reflection
paper identifies key enablers for the transition towards sustainability. It outlines
three scenarios on how best to progress on the Sustainable Development Goals: (1)
An overarching EU SDGs strategy to guide all actions by the EU and Member
States; (2) Continued mainstreaming of the SDGs in all relevant EU policies by the
Commission, but not enforcing Member States’ action; (3) Putting enhance focus
on external action while consolidating current sustainability ambition at EU level.
- United Nations global compact: By incorporating the Ten Principles of the UN
Global Compact into strategies, policies and procedures, and establishing a culture of
integrity, companies are not only upholding their basic responsibilities to people and
planet, but also setting the stage for long-term success. The Ten Principles of the
United Nations Global Compact are derived from: the Universal Declaration of
Human Rights, the international Labour Organization’s Declaration on Fundamental
Principles and Rights at Work, the Rio Declaration on Environment and Development

24
and the United Nations Convention Against Corruption.
- United Nations Guiding Principles on Business and Human Rights, published in
2011. This publication contains a set of guidelines for States and companies to prevent,
address and remedy human rights abuses committed in business operations.
- UN 2030 agenda for sustainable development: set out a 15-year plan to achieve
17 Goals were adopted by all UN Member States in 2015 which includes: (1) no
poverty, (2) zero hunger, (3) good health and well-being, (4) quality education, (5)
gender equality, (6) clean water and sanitation, (7) affordable and clean energy, (8)
decent work and economic growth, (9) industry, innovation and infrastructure, (10)
reduced inequalities, (11) sustainable cities and communities, (12) responsible
consumption and production, (13) climate action, (14) life below water, (15) life on
land, (16) peace, justice and strong institutions, (17) partnerships for the goals.
- ISO 26000 guidance standard on social responsibility, published in 2010. It
provides guidance to those who recognize that respect for society and environment is
a critical success fator. As well as being the “right thing” to do, application of ISO
26000 is increasingly viewed as a way of assessing an organization’s commitment
to sustainability and its overall performance.
- OECD guidelines for multinational enterprises, updated in 2011. They are
recommendations addressed by governments to multinational enterprises operating
in or from adhering countries. They provide non-binding principles and standards
for responsible business conduct in a global context consistent with applicable laws
and internationally recognized standards. The Guidelines are the only multilaterally
agreed and comprehensive code of responsible business conduct that governments
have committed to promoting.
- OECD due diligence guidance for responsible business conduct, published in
2018. It provide practical support to enterprises on the implementation of the OECD
Guidelines for Multinational Enterprises.
- The GRI Sustainability Reporting (GRI Standards) which provides an
international, standardized language that corporations could use for on their

25
sustainability report. The Global Reporting Initiative (GRI) is an independent
international organization that help businesses and governments understand and
communicate their impacts on essential issues such as climate change, human
rights, governance and social well-being. The GRI Standards are issued by the
Global Sustainability Standards Board, an independent operating entity of GRI.
- The International Integrated Reporting Framework (IR Framework) developed
by the International Integrated Reporting Council (IIRC). It sets out the principles and
contents that govern an integrated report. The purpose of an integrated report is to
explain to providers of financial capital how an organization creates value over time.
An integrated report benefits all stakeholders including employees, customers,
suppliers, business partners, local communities, regulators and policy-makers.
Furthermore, guidelines that have been developed for the financial services
sector to address global CSR issues include:
2.3.1. The Equator Principles
The Equator Principles (EPs) is a risk management framework, adopted by
financial institutions, for determining, assessing and managing environmental and
social risk in projects and is primarily intended to provide a minimum standard for
due diligence and monitoring to support responsible risk decision-making. The EPs
apply globally, to all industry sectors and to four financial products: Project Finance
Advisory Services, Project Finance, Project-Related Corporate Loans and Bridge
Loans. The relevant thresholds and criteria for application is described in detail in
the Scope section of the EPs. Current effective version is EP3 which from Jun 2013.
The EP3 include 10 principles as briefly mentioned as follows:
Principle 1: Review and Categorization: When a Project is proposed for
financing, the Equator Principles Financial Institution (EPFI) will categorize it based
on its potential environmental and social risks and impacts. The categories are:
Category A: Projects with potential significant adverse environmental and social risks
and/or impacts; Category B: Projects with potential limited adverse environmental and
social risks and/or impacts; and Category C: Projects with minimal or no adverse

26
environmental and social risks and/or impacts.
Principle 2: Environmental and Social Assessment: For all Category A and
Category B Projects, the EPFI will require the client to conduct an Assessment
process to address the relevant environmental and social risks and impacts.
Principle 3: Applicable Environmental and Social Standards: The Assessment
process should address compliance with relevant host country laws, regulations and
permits that pertain to environmental and social issues.
Principle 4: Environmental and Social Management System and Equator
Principles Action Plan: For all Category A and Category B Projects, the EPFI will
require the client to develop or maintain an Environmental and Social Management
System (ESMS).
Principle 5: Stakeholder Engagement: For all Category A and Category B
Projects, the EPFI will require the client to demonstrate effective Stakeholder
Engagement as an ongoing process in a structured and culturally appropriate
manner with Affected Communities and, where relevant, Other Stakeholders.
Principle 6: Grievance Mechanism: For all Category A and, as appropriate,
Category B Projects, the EPFI will require the client to establish a grievance
mechanism designed to receive and facilitate resolution of concerns and grievances
about the Project’s environmental and social performance.
Principle 7: Independent Review: For all Category A and, as appropriate,
Category B Projects, an Independent Environmental and Social Consultant will
carry out an Independent Review of the Assessment Documentation in order to
assist the EPFI's due diligence, and assess Equator Principles compliance.
Principle 8: Covenants: For all Projects, the client will covenant in the
financing documentation to comply with all relevant host country environmental
and social laws, regulations and permits in all material respects.
Principle 9: Independent Monitoring and Reporting: For Project Finance under
Category A and, as appropriate, Category B, and for Project-Related Corporate Loans

27
which an Independent Review is required under Principle 7, the EPFI will require
the appointment of an Independent Environmental and Social Consultant, or require
that the client retain qualified and experienced external experts to verify its
monitoring information which would be shared with the EPFI.
Principle 10: Reporting and Transparency: The EPFI will report publicly, at
least annually, on transactions that have reached Financial Close and on its Equator
Principles implementation processes and experience, considering appropriate
confidentiality considerations according to an minimum reporting requirements.
Currently 104 EPFIs in 38 countries have officially adopted the EPs1
,
covering the majority of international project finance debt within developed and
emerging markets. EPFIs will review and update the Equator Principles on a
periodic basis based on implementation experience and in order to reflect ongoing
learning and emerging good practice. The latest update is EP4 was released on 18
November 2019 and all EPFIs will must implement EP4 from 1 October 2020.
2.3.2. UNEP FI Principles for Responsible Banking
The United Nations Environment Programme Finance Initiative (UNEP FI) is a
partnership between UNEP and the global financial sector to mobilize private sector
finance for sustainable development. The Principles for Responsible Banking were
launched by UNEP FI with more than 130 banks from 49 countries, representing more
than $47 trillion in assets, on 22 and 23 September 2019 in New York City2
, during the
annual United Nations General Assembly. The Principles for Responsible Banking help
banks to align its business strategy with society’s goals as expressed in the United
Nations’ Sustainable Development Goals and the Paris Climate Agreement. The
Principles provide the framework for a sustainable banking system, and help the
industry to demonstrate how it makes a positive contribution to society. There are six
Principles as below table , and banks which become signatories to the
1 Source: https://equator-principles.com/about/352/ accessed on 15Feb2020
2 Source: https://www.unepfi.org/banking/bankingprinciples/ accessed
on 15Feb2020

28
Principles make a commitment to the underlying ambitions of each principle. The
Guidance Document is also available to support banks in implementation of the
Principles.
Table 2.2. The Principles for Responsible Banking
Source: UNEPFI website
The main idea of each principle are briefly summarized as follows:
Principle 1: Alignment: In line with the Principles for Responsible Banking
Framework Documents, banks are required to describe how they are aligning their
business strategy with the SDGs, Paris Climate Agreement, and other frameworks
that are most relevant to their operating contexts
Principle 2: Impact and target setting: In the Preamble to these Principles, banks
have defined their purpose as helping to develop sustainable economies and to
empower people to build better futures. To put this purpose into practice, banks need to
identify, assess and improve the impact on people and environment resulting from their
activities, products and services. For the banks to continuously increase positive impact
while reducing negative impact on people and environment, they need to incorporate
assessment of risks and impacts on all three dimensions of sustainability
(environmental, social and economic) into business decision-making at strategic,

29
portfolio and transaction levels. Setting targets is an essential component to
scaling up banks’ contributions to society’s goals.
Principle 3: Clients and customers: Banks are vital economic intermediaries
and as such can make their most significant contributions to society’s goals by
creating synergies with customers and clients, encouraging sustainable practices and
accompanying their customers and clients in their transition towards more
sustainable business models, technologies and lifestyles.
Principle 4: Stakeholders: Proactively consulting stakeholders ensures bank
benefits from their knowledge and subject-matter expertise and enables the
correct/legitimate definition of society’s goals; it drives legitimacy and capacity to
identify positive and negative impacts. Proactively engaging stakeholders early on
ensures that all relevant interests are taken into account and a bank will not
encounter challenges down the line.
Principle 5: Governance and culture: It requires establishing a daily business
culture and practice in which all employees understand their role in delivering the
bank’s purpose and integrate sustainability in their work and their decision-making.
To deliver on its commitments under these Principles, a bank needs to put in place
effective governance procedures pertaining to sustainability, including assigning
clear roles and responsibilities, setting up effective management systems and
allocating adequate resources.
Principle 6: Transparency and Accountability: Public disclosure is critical as it
enables internal and external stakeholders to assess your banks’ contribution to
society, and the progress it is making. This, in turn, helps build confidence in your
bank’s sustainability-related commitments and helps to distinguish your bank from
its competitors. Making targets public and reporting progress significantly increases
the potential for success in achieving them. Progress reports are key to ensuring the
effectiveness of your approach, to motivating employees, competing with peers,
driving innovation, and strengthening reputation and trust.
Considering that banks which commit to the Principles will differ significantly

30
in context and starting point, The Guidance Document has also been made available
to support banks in their implementation of the Principles and point to relevant
resources, tools, frameworks and good practices.
2.3.3. The UN Principle for Responsible Investment
The UN Principles for Responsible Investment (PRI) are a set of six principles
that provide a global standard for responsible investing as it relates to environmental,
social and corporate governance (ESG) factors. Organizations follow these principles
to meet commitments to beneficiaries while aligning investment activities with the
broader interests of society. The Six UN Principles for Responsible Investment include:
(1) We will incorporate ESG issues into investment analysis and decision-making
processes; (2) We will be active owners and incorporate ESG issues into our ownership
policies and practices; (3) We will seek appropriate disclosure on ESG issues by the
entities in which we invest; (4) We will promote acceptance and implementation of the
principles within the investment industry; (5) We will work together to enhance our
effectiveness in implementing the principles; (6) We will each report on our activities
and progress towards implementing the principles.
Launched in 2006, by 2019, over 2,250 investment institutions have become
signatories with approximately $86 trillion assets under management.3
2.2.4. EU Directive on Non-financial and Diversity Information
In 2014, the European Union passed through the new European Directive
2014/95/EU. The directive outlines the rules on how large companies shall disclose
their non-financial and diversity information (Directive 2014/95/EU of the European
Parliament and of the Council). By that, organization must produce a non-financial
report if they are a large undertaking, as defined by Directive 2013/34/ EU, defined as
exceeding 2 out of 3 of the following criteria for 2 successive accounting periods or if
they are a public-interest entity or have an average number of employees exceeding
500 during the financial year. The Information must be provided at the
3 Source: https://www.unpri.org/pri/about-the-pri accessed on 20Feb2020

31
minimum for the matters such as environmental, social and employee matters,
respect for human rights and anti-corruption and bribery matters.
Organization must produce a diversity report if they are a public interest entity
with respect to the undertakings such as administrative, management, supervisory
bodies. The report must include the matters such as: age, gender, professional and
education background.
2.3. CSR in European banking sector
The European banking industry has long ago realized the central importance
of having a defined CSR policy. Banks fully understand the worth of CSR because
they are such central actors in any modern economy. Together, members of the
European Banking Federation (EBF) account for a total of combined assets three
times the total EU GDP and they accounted for 1.5% of the total number of people
employed in the EU (EBF, 2017).
2.3.1. Overview of banking industry in Europe
The performance of the Eurozone economy is closely linked to the health of its
banking system. Europe banking system is the largest in the world. In the “2019 Facts
& Figures” report of EBF, the data shows that banks continued to scale back their
physical presence across Europe because widespread branch network become less
important. Clients increasingly interact with banks through digital channels instead of
branches. In 2018, the total number of bank branches in the EU declined to
approximately 174,000, down 5.6 percent, or about 10,000 branches, when compared
to the end of 2017. The amount of total assets held by EU banks expanded in 2018 after
few years of consecutive contraction. In 2019 it enlarged by approximately €500
billion from the previous year amounting to €43.35 trillion (€30.9 billion in euro area
and €12.5 billion in non-euro area). The expansion came basically from gain in the
total assets in the euro area countries (1.6%). Considering the country breakdown,
the country with the strongest boost in absolute terms was Finland with €176 billion
(39.1%) (EBF, 2019). Total assets in EU banks from 2014 to 2018 following figure:

32
Figure 2.1. Total assets in EU banks 2018
Source: EBF, 2019
Regarding to the bank funding, the share of deposit liabilities over total assets
increased in 2018 from 53.4% to 54.2%, in line with the rising trend since 2007
(47.3%) that reveals the shift towards greater reliance on deposits as a source of
funding.
Figure 2.2. Deposits in EU banks as a share of total banking asset 2018
Source: EBF fact & features 2019

33
Figure 2.3: Share of bank loans and capital markets in US, EU, JP
Source: EBF fact & features 2019
Banks are a core element of corporate and household finance in Europe.
Corporations in Europe and Japan tap banks for three-quarters of their financing
requirements while the regions’ households rely on them for nine-tenths of funding
needs. That is double and triple the proportion seen in the US, respectively. Beyond
providing lending, banks also act as intermediaries, advisers and providers of both
capital and risk management expertise for capital markets. Far from being mutually
exclusive, market-based financing and banking finance work together to meet the
needs of companies and investors. A critical ingredient of this success is the
diversity of the European banking sector, consisting of banks of different sizes,
allowing for breadth and depth (EBF, 2019)
2.3.2. The role of authorities in CSR activities
In Europe, both the European Union and individual nations advocate CSR.
This thesis analyze the role of some authorities at the EU-level which have strongly
promoted CSR activities in banking sector such as European Commission, the
European System of Central Banks and European Banking Federation.

34
Firstly, The European Commission (EC) has played a pioneering role in the
development of public policy to promote CSR ever since its 2001 Green Paper and
the establishment of the European Multi-stakeholder Forum on CSR. The impact of
EC’s policies on CSR has been summarized in the paper :” A renewed EU strategy
2011-14 for Corporate Social Responsibility”, published in 2011. By that, in 2006
the Commission published a new policy whose focus was strong support for a
business-lead initiative called the European Alliance for CSR. The policy also
identified 8 priority areas for EU action: awareness-raising and best practice
exchange; support to multi-stakeholder initiatives; cooperation with Member States;
consumer information and transparency; research; education; small and medium-
sized enterprises; and the international dimension of CSR. Through the European
Alliance on CSR, leading enterprises developed a series of practical tools on key
issues. About 180 enterprises expressed support for the Alliance. The remainder of
this communication presents a modern understanding of CSR, including an updated
definition, and a new agenda for action. In October 2011, the EC adopted a new
strategy that marked an important step in the development of EU’s CSR policy. The
new strategy puts a strong focus on a core set of internationally recognized CSR
guidelines and principles as part of an evolving and strengthened global framework.
These internationally recognized principles and guidelines include OECD
Guidelines for Multinational Enterprises, the ten principles of the United Nations
Global Compact, the ISO 26000 Guidance Standard on Social Responsibility, the
International Labour Organization (ILO) Tri-partite Declaration of Principles
Concerning Multinational Enterprises and Social Policy, and the United Nations
Guiding Principles on Business and Human Rights. As part of this strategy, the
European Commission has invited all large European enterprises to make a
commitment by 2014 to take account of at least one of these sets of instruments
while developing their own policies on CSR.
Secondly, the European System of Central Banks (ESCB) play an important
position in European banking industry. The members of the euro area are Austria,
Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia,

35
Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and
Spain. The European Central Bank (ECB) is the central bank of the 19 European Union
countries which have adopted the euro. EU Member States who have not used euro
currency are Bulgaria, Croatia, the Czech Republic, Denmark, Hungary, Poland,
Romania, Sweden (the United Kingdom has been formally left the EU on 31 January
2010). ESCB comprises the ECB and the national central banks (NCBs) of all EU
Member States whether they have adopted the euro or not. In order to develop financial
culture, the European Central Bank publishes popular materials, videos and games on
its website, which are primarily aimed at the younger generation and their teachers
(ECB 2014b). Moreover, many publications are published on the website of the ECB.
Developing financial culture appears prominently at the central banks of several
European countries as well. The National Bank of Poland, for example, supports
research and organizes conferences and seminars on the role of central banks in the
economy, within this, among others, about the topics of monetary policy, financial
stability and the competences of central banks. In connection with the topic of
consumer protection, the Czech National Bank promotes the development of financial
knowledge with the following: distribution of manuals and workbooks among teachers
and students, and the organisation of seminars and interactive exhibitions. The Danish
National Bank assists economic culture with the Danish Journal of Economics
scientific journal, PhD scholarships, and with an award rewarding women economists.
Supporting economic research, education and university students is the objective of the
Spanish National Bank as well, and humanitarian and social work, and the creation of
non-profit centres also appear. The Dutch central bank considers itself as part of the
society, which appears in community work, sponsorships, assistance, and the support
of the cultural, educational and welfare sphere as well (Lentner et al., 2017).
The last authority to be mentioned is European Banking Federation (EPF). The
EBF members account for over 3,500 banks in 32 countries, comprising the European
Union and European Free Trade Association. They extend 80% of total loans, hold
almost 70% of deposits and an estimated EUR 45.8 trillion in assets. The European

36
banking sector is the world’s largest banking system in the world’s largest
economic space. Therefore, given the European banking industry’s pivotal role in
the modern economy, it realized long ago the central importance of articulating and
defining its role in CSR and ways to integrate CSR into daily business practices.
CSR is included in the EBF Guiding Principles, to the extent that banks' work in
this field should be highlighted, and that information on their achievements ought to
be broadly conveyed. In 2008, for example, the EBF have already published a
similar report on ‘European Banking Sector CSR Best Practices’ in a bid to raise
awareness to the EU policy makers of just how important CSR is to the industry.
The actual report aims out to inspire future CSR activities by illustrating how
voluntary CSR initiatives have served society at large. The EBF foresees the
publication of an updated report on a regular basis. The European Banking
Federation (EBF) therefore considered that it was opportune to set up a dedicated
working group at the European level. Considering that the Corporate Social
Responsibility scope of actions belongs to individual banks, the EBF ispositioning
itself as the spokesman of the CSR initiatives of the banking sector (EBF, 2019)
2.3.3. CSR practice in European banking industry
The European banking sector is the world’s largest banking system in the
world’s largest economic space. Therefore, given the European banking industry’s
pivotal role in the modern economy, it realized long ago the central importance of
articulating and defining its role in CSR and ways to integrate CSR into daily
business practices (EBF, 2013). The highlighted achievements in CSR activities
will be reviewed in key sectors such as : community involvement, environmental
impact, information disclosure, socially responsible investment and labor relations.
2.3.3.1. Community involvement
Community involvement in corporate social responsibility can be defined as
the contribution of banks and/or bankers’ associations to the community where their
businesses are established or conduct their business via drivers such as education,
innovative partnership, empowerment staff, backing micro finance. The following

37
will analysis some typical examples from various activities that exist today across
Europe.
Many national banking’ associations and their members offer educational
programmes to help develop the financial skills of the general. This could be, for
example, by means of organizing conferences, and seminars for teachers and tutors
on specific topics. An example from Bank of England who have offer many online
free classroom materials help to explain how the economy works and what the Bank
of England does. There are many topic regarding to economic sector for each object
such as: for age 8 to 14 focused on Learning from the financial crisis: Every eight
weeks, a new resource to help nine-year-olds and upwards published to develop
knowledge, critical thinking, literacy and confidence through inspiring discussions
about the news; for age 11 to 16 focused on “EconoME” which provides young
people with a greater economic awareness and the analytical skills to make
informed decisions.4
In 2016, the Council of Europe Development Bank (CEB) invested €718 million
in education and vocational training projects. Bulgaria, Cyprus, Sweden, Finland,
Hungary and France all benefited from loan financing to enhance the quality and
inclusiveness of education (CEB, 2016). HSBC also has long supported education
across the globe, especially helping disadvantaged young people access primary,
secondary and higher education. In addition, they are providing $80 million to help
people in the wider communities we serve develop the skills for the jobs5
. Recent
projects on education include: providing tools and resources such as HSBC University
to help our employees develop and identify areas for career development; help students
develop the business skills needed for the future by supporting the world’s largest
business case competition in Asia; Sponsoring the Student Energy Summit 2019, which
enhanced university students’ understanding of sustainability in
4 Source: https://www.bankofengland.co.uk/education/education-resources
accessed on 08Feb20
5Source: https://www.hsbc.com/our-approach/building-a-sustainable-
future/employability-and-financial-capability accessed on 08Feb20

38
the future economy; supporting social enterprises that help people in local
communities develop their employability and financial capability skills.
Beyond supporting and financing traditional initiatives, the financial sector
invests a great deal in beneficial projects for civil society. Barclays PLC is one of the
banks which work with a lot of organizations to partner on projects, provide support,
and share expertise including industry initiatives, academic institutions and Non-
Governmental Organization (NGOs). Barclays helped raise $1.47bn through a bond
offering for the acquisition of HCR ManorCare by ProMedica Health Systems( a
leading not for profit healthcare provider). The transaction was deemed one of the
largest acquisitions of a for-profit company by a not-for-profit healthcare entity and the
combined organization aims to create a unique healthcare delivery platform that will
redefine healthy aging for the future. In October 2018, the Power Up Midlands
programme is an innovative partnership between Big Issue Invest and Barclays UK.
Following a competitive application process, 14 impactful social and community
businesses from across the Midlands have joined the programme. In order to support
the sustainable growth of the organisations and maximise their local impact, Barclays
and Big Issue Invest will provide business development training and mentoring, in
addition to potential investment, in 2019 (Barclays PLC Report 2018).
Many banks all over Europe have their own foundations with specific focus areas
and targets. Community-based projects and micro-enterprises are benefitting from a
donation from the banking sector in Ireland to a Social Finance Foundation. Launched
in 2007, the initiative serves as a source of wholesale funding for community-based
projects and micro-enterprises that would not otherwise qualify for mainstream
commercial funding. A further loan agreement in the same country involves banks
providing 12-year loans at very competitive interest rates. The foundation provides
funding to social lending organizations which, in turn, provide repayable loans at
affordable interest rates for community projects, local development initiatives, and
micro-enterprises that have a social impact. BNP Paribas SA has been active in
microfinance for 30 years. In 2019 it financed € 1.6 billion for microfinance
institutions (MFIs) and social enterprises. Over 358,000 micro-

39
borrowers benefited in 17 countries, and the bank will increase the amount by 10%
every year. They signed an investment agreement in October 2018 to strengthen
specialized MFIs in Europe, including a €1 million investment in the Helenos Fund,
whose mission is to contribute to reducing unemployment and social exclusion
through micro-entrepreneurship across Europe (BNP Paribas report 2019).
2.3.3.2. Environmental impact
Environmental management or minimize negative environmental impacts and
promoting environmental management is an essential item of the CSR policy.
Banks take on a wide range of initiatives to help combat climate change reduce
energy, water and resource use in both their own operations and those of their
clients and other stakeholders. Tools that are used to reach environmental goals for
banks and in sectors that banks support include: contributing to research,
environmental certification, environmental management and reporting of annual
carbon footprint, Eco-friendly financial products, green finance, eco management,
green constructing business, low energy buildings (EBF, 2013).
Successful efforts to reduce carbon emissions include reduced business travel
and increased use of video conferencing, lower electricity consumption through
upgrading and switching to modern equipment, and innovative technologies to
reduce paper use. Many banks support the Carbon Disclosure Project and report on
their CO2 emissions. Barclays PLC has a Group Property Policy which sets out
criteria for environmental management, risk, opportunity and control for their
buildings as they operate the business. Within the Property Policy they have
environmental controls which range from aspects and impacts, pollution control
through to environmental data reporting. These controls are audited internally by
Barclays Internal Audit on an annual basis and control effectiveness is reported up
to senior management as part of our Enterprise Risk Management Framework.
Within the Property Policy they include a commitment that any building investment
over £5m will achieve an independent best practice standard for environmental
performance (Barclays PLC report, 2018).

CORPORATE SOCIAL RESPONSIBILITY IN EUROPEAN BANKING INDUSTRY AND LESSON FOR VIETNAM

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